The comments on the tax gap and the need to be able to tackle compliance in the cryptocurrency space underscores the agency’s need for more funding as requested in the White House budget request for fiscal year 2023.
In his written testimony submitted to the committee, Rettig noted that the agency, “Can no longer audit a respectable percentage of large corporations, and we are often limited in the issues reviewed among those we do audit. These corporations can afford to spend large amounts on legal counsel, drag out proceedings, and bury the government in paper. We are, quite simply, ‘outgunned’ in our efforts to assure a high degree of compliance for these taxpayers.”
He added that it is unacceptable that corporations and the wealthiest individuals have such an advantage to push back on the nation’s tax administrator. “We must receive the resources to hire and train more specialists across a wide range of complex areas to assist with audits of entities (taxable, pass-through and tax-exempt) and individuals (financial products; engineering; digital assets; cross-border activities; estate and gift planning; family offices; foundations; and many others),” his written testimony states.
Rettig wrote that the agency current has fewer than 2,000 revenue officers, “the lowest number of field collection personnel since the 1970s,” to handle more than 100,000 collection cases in active inventory. He continued: “In addition to our active inventory, we have over 1.5 million cases (more than 500,000 of which are considered high priority) awaiting assignment to these same 2,000 revenue officers. We have classified roughly 85% of those cases as high priority, many of which involve delinquent business employment taxes.”
The lack of funding is also hampering criminal investigations. “Much like other operating divisions in the IRS, CI is close to its lowest staffing level in the past 30 years. With fewer agents, we have fewer cases and fewer successful convictions,” he stated in the written testimony.
Much of this also is compounded by the ancient IT infrastructure at the agency, another reason Rettig advocated during the hearing for more funding. “Limited IT resources preclude us from building adequate solutions for efficiently matching or reconciling data from multiple sources,” he wrote. “As a result, we are often left with manual processes to analyze reporting information we receive.”
Retting specifically highlighted the Foreign Account Tax Compliance Act, which Congress enacted in 2010 but, according to Retting, has yet to appropriate the funding necessary for its implementation. “This situation is compounded by the fact that when we do detect potential non-compliance or fraudulent behavior through manually generated FATCA reports, we seldom have sufficient funding to pursue the information and ensure proper compliance,” he wrote. “We have an acute need for additional personnel with specialized training to follow cross-border money flows. They will help ensure tax compliance by improving our capacity to detect unreported accounts and income generated by those accounts, as well as the sources of assets in offshore accounts.”